M.P. Evans Group PLC (MPE) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the M.P. Evans Group PLC webcast. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd be most grateful if you could give that your kind attention. I'd now like to hand over to CEO, Matthew Coulson, Matthew. Good afternoon.

Thank you, Marc, and good afternoon, and good afternoon to everyone who's joining us today. I should start by explaining that today's session is a little bit different from our usual results presentations. We wanted to take this opportunity to look in a bit more detail at 2 areas of the business that are very important to understanding M.P. Evans, responsible production and pricing dynamics. Our aim is very simple to give shareholders and other investors a clear sense of how we think about these topics, how they relate to the group and why they matter to the long-term investment case. So we'll start with 2 short videos that feature me and Luke before we return for about 20 or 25 minutes of Q&A. Now if time doesn't allow us to answer everything today, we will, of course, respond to any remaining questions after the event via the platform. So now time for the videos. At M.P. Evans, we are proud about long term commitment to responsible production of sustainable Indonesian palm oil. We understand that at times for palm oil sector has received criticism and also that the times certain participants in the industry have not followed sustainable practices. As a result, the whole industry suffered reputational damage and leading on from there, a common misconception has emerged that palm oil is in some way inherently worse for the environment than alternative vegetable oil. However, we are here to demonstrate that palm oil can be responsibly without deforestation maintaining biodiversity and natural habitats in collaboration with local communities and is extremely efficient to produce.

As Matthew said, that efficiency begins with the crop itself. Oil palm is remarkably productive when considering the amount of vegetable oil produced from each hectare under cultivation. When compared to the world's other major vegetable oil such as soy, sunflower and rapeseed, oil palm produces between 5 and 10x the amount of oil per hectare. At M.P. Evans, we continue to produce some of the highest yields in the industry, thanks to the expertise of our dedicated management teams. Overall, oil palm accounts for almost 40% of world vegetable oil production from less than 10% of the land used for cultivation. Palm is an extremely versatile oil and is used in a wide range of food and other consumer products. It is one of the most traded vegetable oils and an important contributor to global food security. This matters.and continues to be of increasing environmental importance in a world that needs more vegetable oil. Demand has been rising for many years around the world as populations have grown, but also as average incomes have gone up and there has been a continuing trend towards urbanization. During that time, palm has been taking an increasing share of a growing vegetable oil market. Palm oil and particularly the responsibly and efficiently produced palm oil from M.P. Evans is well placed to meet that growing demand. Over more recent years, the use of palm as a biofuel has been a further growth factor and continued growth is anticipated, particularly in locations looking to manage their energy security and exposure to fossil fuel requirements. For example, in Indonesia, the world's largest palm oil producer, there has been an increasing mandate for the use of palm in which the country's biodiesel program which is now aiming for a 50% palm oil blend is resulting in a larger domestic demand.

As I mentioned at the start, at M.P. Evans, we are proud to be producers of sustainable palm oil. But what does this mean? And how do we demonstrate our commitment? Well, first of all, the group is a long-standing member of the RSPO, the Roundtable on Sustainable Palm Oil. That's the most well-recognized sustainability and accreditation body in the sector. The group develops and manages its plantations in accordance with the stringent environmental and social criteria laid out by the RSPO and arranges for all its palm oil mills to be independently audited to their standards. All group mills are accredited as sustainable. And in 2025, the group produced 275,000 tonnes of certified palm oil 80% of the output from the group's 6 mills. Of course, one of our key commitments is that we do not deforest and only develop areas suitable for cultivation. In addition, we deliberately set aside and actively manage conservation land. By the end of 2025, our team was responsible for over 8,000 hectares, representing more than 10% of the group's planted total in accordance with our stated goals, including some highly sensitive and important areas with high conservation value. We are determined to go significantly beyond what is required, and we do this in several ways. Our smallholder schemes attached to all group estates seek to provide real and valuable benefits to local communities around our operations. Across the group, over 16,000 hectares under cultivation are owned by members of the local communities, a valuable and income-generating asset for them. All the group's mills are run with zero waste principles embedded within them. This enables us to reuse what would otherwise be waste products to reduce our reliance on fossil fuels and inorganic fertilizers to save costs and reduce greenhouse gas emissions. We commit to investing in community life on our estates, which can at times be in relatively remote and rural locations. This includes developing high-quality housing for the group's workforce and providing wider estate facilities, including schools, clinics, shops, places of worship and recreational facilities. The group's commitment to responsible and sustainable operation has been recognized externally in several ways, most recently, the group was pleased to receive the Green Economy Mark from the London Stock Exchange, recognizing our positive contribution to the global green economy and sustainable practices. So when we talk about responsible production at M.P. Evans, we are not talking about a single accreditation or one part of the business. It runs through how we develop and manage our estates, how we protect conservation areas, how we work with local communities, how we operate our mills and how we think about the long-term role of palm oil in the global vegetable oil market. Our view is very simple. Palm oil is an efficient and important crop produced responsibly and to high standards, it can be part of the solution.

At M.P. Evans, we have 6 palm oil mills which process the crop from our estates. Those mills produce crude palm oil or CPO and palm kernels or PK, referred to in combination as palm products. The group sells both of these for onward processing within Indonesia and is not responsible for any exporting. Both the group's key products, CPO and PK are globally traded commodities. As such, the group has limited influence over the amount for which its output is sold. However, as a result of the group's focus on efficient operations, both in its estates and its mills and on being a low-cost producer, it has consistently achieved profitability and cash generation irrespective of commodity price cycles. As Matthew mentioned, we are committed to be an efficient and low-cost producer. But how do we maintain that commitment? Everything starts with productivity and operational excellence, ensuring that we make the right decisions to benefit long-term yield. Oil palm is a long-term asset with a life cycle of 25 years and decisions taken today can have lasting consequences. The group benefits substantially from being in a robust and healthy financial position without investment constraints. Furthermore, oil palm is a permanent tree crop, which provides a year-round harvest and is resilient to periods of adverse weather conditions, providing a reliable and ongoing yield. Whilst it is important to maintain and control costs, the group is in an excellent position to continue increasing its own output, which in turn decreases its unit costs. We can do this by focusing on state yields and improving oil extraction rates at our mills. The group has in previous years, been reliant to a certain degree on purchasing crop from outside suppliers to improve the utilization of its palm oil mills. As the group's own crop continues to increase, the reliance on outside crop, which is typically higher cost, lower quality input decreases, and the group is able to reduce average unit costs and improve margins.

Luke has referred to the financial benefits to the group from processing more of our own harvest, and bringing in a smaller amount from outside suppliers. Of course, there are other benefits as well. As we increase the proportion of the group's own harvest that is processed, so the proportion of certified sustainable output increases. We have already seen the benefit of this as in 2025, 80% of the output from group mills qualified as sustainable, and this is expected to continue going up. As this proportion rises, so the group will have the opportunity to receive additional sustainability premium income, including the potential to access higher grades of premiums.

The group sells its palm product at mill-gate. In 2025, the group achieved an average price for its CPO of $868 per tonne and $747 per tonne for its PK. By historical standards, these were strong prices, and there is evidence of an upward trend in pricing over the medium to longer term. For example, over the last 5 years, the group's average CPO selling price has been $806 per tonne and over the last 10 years, $717 per tonne. In 2025, as a result of the group's ongoing commitment to low-cost operations, the total unit cost per tonne of palm product was $528, giving $340 of margin per tonne of CPO produced. Commodity prices are publicly available on a daily basis, and one of the most recognized benchmarks is the CIF Rotterdam price. The group's mill-gate price differs from the Rotterdam price as a result of local and international freight costs insurance and export taxes and levies.

In 2025, the average CIF Rotterdam price was $1,221 per tonne compared to, as mentioned earlier, an average mill-gate price for the group of $868 per tonne. The chart shows the various elements bridging between the 2 prices. Whilst the market is dynamic and continually moving, leading to different prices available to the group, benchmark prices give an indication of the overall price environment. The group has a skilled marketing team based in Jakarta who work with the group's customers to ensure that the best available prices are secured for each shipment from the group's mills.

While M.P. Evans is a price taker in a global commodity market, the group is not passive in how it manages the factors within its control. Our focus is on productivity, efficient milling disciplined cost control, increasing the proportion of our own crop processed through our mills and securing the best available price on every sale. The point is a simple one. We do not set the price status for the market. What we control is how efficiently we operate and it is that discipline which allows the group to earn strong margins and healthy cash flow through the cycle, whatever the price.

Great. So that brings us to the end of the video section today. I hope it's been helpful in giving some further context around responsible production and pricing dynamics and how they both relate to us here at M.P. Evans. At this stage, Luke and I would now be very happy to take your questions.

That's great. Matthew, Luke. [Operator Instructions] You've had a number of questions. So thank you to everybody for your engagement this afternoon. Perhaps we start off with the first one, given the rise of the price of oil due to the situations, obviously, in Hormuz in the Middle East was relatively brief. What's been the impact on the company with regards to fertilizer costs?

Well, thanks, Marc. I mean I think I'll take that one. So we were quite fortunate when it came to fertilizer pricing. So you're quite right to call out that what's happened in the Strait of Hormuz has had an impact on fertilizer pricing. We did see an increase from sort of March onwards when looking at what was available pricing-wise in the market. The good news is that we actually procure our fertilizer in advance of applications. So we were able to secure fertilizer that we put down in the first half of this year. We bought that in the latter part of 2025. And then the fertilizer that we are planning to put down in the second half of '26, we actually were able to purchase that before things began in the Middle East. So we were somewhat protected from that sharp increase in fertilizer pricing that happened from sort of March onwards. We have seen fertilizer pricing since come back down a little bit. Some -- and we use a variety of fertilizers, some have remained still quite high. That potentially then impacts us for 2027. So we will look to purchase our fertilizer for 2027 application probably in the sort of late summer autumn time. So if pricing hadn't come down by then, we may well see a bit of an impact from some of those fertilizers in the P&L at the start of '27. So we have to kind of keep watching that space. Obviously, we've had some improvements over the last couple of weeks in the Middle East, although in the last few days, I know things have moved backwards a little bit. So we'd have to keep an eye on that and try and make sure that when it comes to the timing of our fertilizer purchase, we try and make that at the best time we can.

That's great. Thank you very much, Luke. Let's turn to, I guess, the topic around the Indonesia government's recent announcements in May. When do you expect to know more detail around that? And has this had any impact around pricing?

Yes. Thank you, Marc. Perhaps it's helpful just to take a step back in case not everybody today attending is aware of exactly what's happened. So the Indonesian government in May announced some planned changes to the way in which palm is exported from Indonesia. And it's also worth saying that this is not just about palm. The Indonesian government is thinking about some strategic commodities in Indonesia. So thinking about palm, thinking about coal, thinking about several ferroalloys that are exported out of Indonesia. And really, the priority for the Indonesian government is knowing that everything is properly recorded and properly accounted for when it's exported out of the country. Now we, as was mentioned in the video, are not exporters. We sell all of our output domestically within Indonesia for onward refining in country. So any impact will not be felt by us directly. Indications at the moment are that there is going to be a very limited, if any, consequence on pricing. Thus far, we've continued to see very robust pricing for all of our output. And as I say, indications are that really this is predominantly about recording and about accuracy of what gets reported in terms of output from the country. We will continue to monitor the situation, of course, and keep investors updated, but that's the situation as we find it right now.

Thanks very much indeed, Matthew. Question here around El Niño. Do you expect El Niño to have an impact on the crop?

Perhaps if I take that one as well. Everybody will have heard a lot about El Niño. It's been very well publicized as a sort of global weather phenomenon. It's something, again, we are continuing to keep a close watch on. Thus far, we've seen no impact on our crop whatsoever. We are in a period in Indonesia where the weather is relatively dry anyway, but that's a seasonal effect rather than anything more substantial. And that's how El Niño is typically felt in Indonesia. You will have an extended dry period. We will continue to see what happens as the rest of the year unfolds. If we do see any effect, 2 observations to make. One is that it tends to then have a delayed effect on cropping patterns because it tends to affect how bunches are initially formed rather than the harvest you receive straight away. So if there is any effect, it may be in '27, even in the latter part of '27 going into '28. But the other thing to say is that based on previous experience, even in those kinds of conditions, palm is a remarkably hardy crop. The last time we saw a big El Niño was back in around 2016. And our experience then was, yes, we did see a fall in crop, but we saw a fall in crop of the order of about 5%. So we're not talking about a dramatic change. We're not talking about the situation that some annual crops might find themselves in where they have a dramatic change in terms of their ability to withstand significant weather patterns. We see a very, very small change and a very, very small impact overall in terms of cropping levels.

Thank you, Matthew. We've got 3 questions from Salvatore in one. So I'll try and break these down into the bits. Otherwise, I think we'll get lost in the direction. But you said, could you clarify whether Indonesia's B40 and any future move to B50 specifically mandates palm oil-based biodiesel or whether other vegetable oils could satisfy the requirement?

Yes, absolutely. So Indonesia is extraordinarily focused on palm. So when they talk about what they're seeking to achieve with their mandates, they are talking about palm. And so clearly, if they are -- they have announced B50, if they are successful, and it's a stage thing. So it's not going to happen overnight. But if they are successful in moving from B40 to B50, then that creates a significant amount of additional demand domestically for further supplies of palm, which as a producer is clearly only good news.

Great. And he goes on to ask, is the mandate effective -- if the mandate is effectively palm specific, should we expect it to create structurally high domestic demand for palm oil, I think you just touched on that. In the context, does the M.P. Evans think about maintaining its cost competitiveness over the long term, particularly if other vegetable oil become more competitive globally?